2018 Investment Outlook Ten Predictions April 2018

Transcription

1 2018 Investment Outlook Ten Predictions April 2018 NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 Why was 2017 an outstanding year for stocks? First perfect year ever (Positive total returns every month) S&P 500 Index total returns (%) January 1.9 February 4.0 March 0.1 April 1.0 May 1.4 June 0.6 July 2.1 August 0.3 September 2.1 October 2.3 November 3.1 December 1.1 Earnings growth powered stocks higher S&P 500 earnings per share growth 12-month year-over-year growth 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Data source: Evercore ISI,1/1/17 12/31/17. Used with permission. Past performance is no guarantee of future results. Data source: Strategas Research Partners, 12/31/15 9/30/17. Used with permission. Past performance is no guarantee of future results. 2

3 2017 Ten Predictions scorecard Theme: A year of transition 1. U.S. and global economic growth improves modestly as the dollar strengthens and reaches parity with the euro. 2. Unemployment drops to its lowest level in 17 years as wages increase at the fastest pace since the Great Recession. 3. Treasury yields move higher for a third consecutive year for the first time in 36 years as the Fed raises rates at least twice. 4. The yield curve flattens (but does not invert) as the yield on the 10-year Treasury reaches 3% for the first time since Stocks outperform bonds for the sixth year in a row for the first time in 20 years while volatility rises. 6. Small caps, cyclical sectors and value styles beat large caps, defensive and growth areas. 7. The financials, health care and information technology sectors outperform energy, utilities and materials. 8. Active managers performance improves as flows into equities rise. 9. Nationalist and protectionist trends rise as pro-domestic policies are pursued globally. 10. Initial optimism about the Trump agenda fades in light of slow legislative progress. 7.0 Correct Scorecard based on Bob Doll's 2017 Ten Predictions with data as of December

4 2018 outlook Themes Nearly perfect Skepticism Smooth gallup less than perfect optimism bumpy grind A slightly more difficult climb Economy Good, accelerating from 2016 Good, decelerating into Inflation Very low, flat Low, rising 3. Interest rates Very low, flat Low, rising 4. Earnings Exploding expectations Meeting expectations Biggest risks Inflation Protectionism China policy misstep 5. Valuations Higher Flattish 6. Policy Anticipating tax cuts Realizing tax cuts 7. Sentiment Skepticism Optimism 8. Confidence Rising Flat, at high level 9. Political backdrop Messy Messier 10. Stocks Straight up Bumpy up 11. Stock returns Double digits Single digits 12. Consistency Every month up A few down months 13. Bad day Flat day Down day 14. Bad performance Make less money Lose money 15. Asset allocation Stocks up more than bonds Stocks up some, bonds down some 4

5 President Trump s policies bring both positives and negatives Trumponomics agenda and implications Pro-growth Tax cuts Regulatory reforms Business confidence Credit creation Capital investment Productivity growth vs. Anti-growth Protectionism Immigration Geopolitical uncertainty Market volatility Exploding deficits Rising interest rates Data source: Wolfe Research. Used with permission. 5

6 Prediction 1 U.S. real GDP reaches 3% and nominal GDP 5% for the first time in over a decade U.S. economy should strengthen Gross domestic product growth Real GDP (%) Nominal GDP (%) E E E 2.5 (E) 4.0 (E) 2018E 3.0 (E) 5.0 (E) Data sources: Bloomberg L.P. Data for is based on estimates from Nuveen Asset Management, Morgan Stanley, Merrill Lynch and JP Morgan. 6

7 Prediction 1 U.S. real GDP reaches 3% and nominal GDP 5% for the first time in over a decade Recessions start on average six years after a new leading indicator peak U.S. leading indicator 140 Recessions New leading indicator peak years Index level years 7 years Data source: Evercore ISI, 12/1/74 9/29/17. Used with permission. 7

8 Prediction 2 Despite ongoing protectionism, the global expansion continues with the fewest countries in recession in history The world economy has likely never been in better shape Number of countries in a recession Number of countries E Data source: IMFWEO, Haver Analytics, DB Global Markets Research, 12/31/17. Used with permission. Past performance is no guarantee of future results. Data for represents IMF forecasts. 8

9 Prediction 2 Despite ongoing protectionism, the global expansion continues with the fewest countries in recession in history Is global trade peaking? U.S. imports and exports 30% 25% 20% Percent of GDP 15% 10% 5% 0% Data source: Wolfe Research, 12/31/78 9/30/17. Used with permission. 9

10 Prediction 3 Unemployment falls to the lowest level in nearly 50 years as wage growth is the highest since the Great Recession U.S. unemployment is almost the lowest in nearly 20 years U.S. U-3 unemployment rate 12% 10% 8% 6% 4% 2% 3.9% 4.1% 0% Data source: Bloomberg L.P., 12/1/49 11/30/17. Data reflects the U-3 unemployment rate that omits out-of-work people who are willing and able to take a job but don't fit the official definition of unemployed. 10

11 Prediction 3 Unemployment falls to the lowest level in nearly 50 years as wage growth is the highest since the Great Recession Lower unemployment should lead to increased wage inflation U.S. average hourly earnings U.S. unemployment rate 10% 9% 8% 7% 6% 5% 4% 3% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% U.S. unemployment rate U.S. average hourly earnings Recessions Data source: Cornerstone Macro, 1/31/84 11/30/17. Used with permission. 11

12 Prediction 4 The yield curve flattens (but does not invert) as the 10-year Treasury yield reaches 3% for the first time since 2014 Interest rates likely to rise 1. Great monetary experiment ended; unwind becoming synchronized: The Fed is done; European Central Bank and Bank of Japan to end soon 2. World becoming less deflationary 3. Central banks: easing normalizing tightening 4. Robust economic data 5. Capacity utilization rising (especially labor) 6. Valuation 10-year U.S. Treasury yield Low of 1.37% reached on July 8, 2016 Recent high was 2.63% on March 13, 2017 If the yield breaks through 2.63%, 3.00% is the next stop Data source: FactSet. Past performance is no guarantee of future results. 12

13 Prediction 4 The yield curve flattens (but does not invert) as the 10-year Treasury yield reaches 3% for the first time since 2014 Peak liquidity is behind us Monthly flow of central bank asset purchases Asset purchases ($USD billions) $400 Peak quantitative easing: March 2017 $350 $300 $250 $200 $150 $100 $50 Forecast Bank of England U.S. Federal Reserve Bank of Japan European Central Bank Total $0 -$50 -$ E 2019E Data source: Deutsche Bank Research, 3/31/09 12/31/19. Used with permission. 13

14 Prediction 5 Stocks enjoy longest bull market in history but experience a 5%+ correction after the longest period without one Why should this bull market continue? 1. Earnings outlook remains solid. 2. Inflation and interest rates remain contained. 3. Bull market unlikely to end before a rise in volatility. 4. Warning signs are not present. Environment is better than previous bull market endings Market technicals S&P 500 Index return (%) Percent of stocks up (%) Bull markets don t die of old age. Source: Strategas Research Partners, 2017 data as of 12/31/17. Used with permission. 14

15 Prediction 5 Stocks enjoy longest bull market in history but experience a 5%+ correction after the longest period without one The reward of a long-term time horizon Probability of negative returns (1971 present) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 Day 1 Month 1 Qtr 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr Large market pullbacks in midterm election years Pullback (%) Next 12 months return (%) Average -18 Data source: BofA Merrill Lynch, Used with permission. Data source: Strategas Research Partners, Used with permission. 15

16 Prediction 6 U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades S&P 500 total return has exceeded earnings growth S&P 500 earnings growth (% year over year) S&P 500 total return (%) S&P 500 earnings growth (% year over year) S&P 500 total return (%) E 21.8 Data source: BofA Merrill Lynch, 1/1/90 12/31/16. Used with permission. 16

17 Prediction 6 U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades The story so far in great earnings, lower P/Es... flat returns MSCI World Equity Index, indexed as of 31 Dec Great EPS 5 0 Flat price Lower P/Es /29 1/5 1/12 1/19 1/26 2/2 2/9 2/16 2/23 3/2 3/9 3/16 3/23 Data source: Cornerstone Macro, 29 Dec Mar Used with permission. Past performance is no guarantee of future results. 17

18 Prediction 6 U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades Coincident indicators are rising while leading economic indicators are falling Sample business cycle peak We believe we are here Leading indicator (LEI) Coincident indicator (CEI) There is typically a period near the peak in a cycle where leading indicators have peaked but coincident indicators continue to rise Data source: Cornerstone Macro. Used with permission. 18

19 Prediction 6 U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades It is possible to hit 4% growth this year and 3% long term. Jamie Dimon A market surge is ahead. If you re holding cash, you re going to feel pretty stupid. Ray Dalio We are currently showing signs of entering the blow-off or melt-up phase of this very long bull market. Jeremy Grantham The game of economic miracles is in its early innings. Warren Buffet Data source: Evercore ISI, January

20 Prediction 7 Equities beat bonds for the seventh consecutive year for the first time in nearly a century Stocks have outperformed bonds six years in a row S&P 500 Index (%) Bloomberg Barclays U.S. Aggregate Bond Index (%) year return Data source: Morningstar Direct as of 12/31/17. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index. 20

21 Prediction 7 Equities beat bonds for the seventh consecutive year for the first time in nearly a century Bond yields and stock prices often rise concurrently Dates Bond yield increase (basis points) Stock market increase (%) May 2, 1958 July 31, January 11, 1963 February 11, January 27, 1967 November 29, November 5, 1971 January 5, March 3, 1978 November 28, November 5, 1982 July 22, April 18, 1986 August 21, October 2, 1998 January 14, June 13, 2003 May 5, March 20, 2009 April 2, June 1, 2012 December 27, Average increase* July 8, 2016 December 31, Data source: The Leuthold Group and FactSet as of 12/31/17. Used with permission. Past performance is no guarantee of future results. Bond Yields: 10-year U.S. Treasury; Stock Market: S&P 500 Index. Indicates all periods where bond yields and stock prices rallied concurrently. *Average Increase does not include 2017 performance. It is not possible to invest directly in an index. 21

22 Prediction 8 Corporate capital expenditures increase at the expense of share buybacks Capex spending may increase 1. Chronic underinvestment this business cycle 2. Strong profitability 3. Low cost of capital Business fixed investment could rise 6% or more in 2018 (and could add 0.5% to real GDP) 4. Improved economic confidence 5. Lowered corporate taxes 6. Repatriation of deferred foreign profits 7. Expensing of capex in new tax bill 22

23 Prediction 8 Corporate capital expenditures increase at the expense of share buybacks With tax reform, productivity could approach 2% U.S. nonfarm productivity 4.5 Recessions 4.0 Four-quarter 5-year average %? Data source: Cornerstone Macro, 12/31/59 9/30/17. Used with permission. Entitlement programs consist of mandatory federal spending on programs such as Social Security and Medicare that are not included in congressional appropriation acts. 23

24 Prediction 9 Telecommunication services, information technology and health care outperform utilities, energy and materials Overweights Telecommunication services Big yield premium Unpopular, under-owned Defensive, if market choppy Risk: Competitive price cutting Best: Large network providers Information technology Excellent earnings and revisions Global exposure, capex increase Strong balance sheets, net cash Risk: Run too hard? Best: Software, credit cards, not super high P/E Health care Best positioned defensive growth sector Demographics Pipelines improving Risk: Health care reform noise Best: Biotech, managed care Underweights Utilities Rising rate risk Little growth Expensive valuation Risk: Economy weakness, rates fail to rise Energy Oil high end of range? Exposure, leverage Oversupply risk Risk: Supply discipline, oil trades higher Materials Slowing China Infrastructure hope overdone Excess supply Risk: Dollar weakness, infrastructure spending accelerates 24

25 Prediction 9 Telecommunication services, information technology and health care outperform utilities, energy and materials Style preferences Value > Growth Cyclical > Defensive Big > Small As economic growth improves and investors feel the effects of tax reform, we expect markets to shift in

26 Prediction 10 Republicans lose the House, retain the Senate and further distance themselves from President Trump House seat changes two years into president s first term Democrats need 24 additional seats to retake the House Election year President Seats won/lost 1974 Ford Carter -15* 1982 Reagan H.W. Bush Clinton -54* 2002 W. Bush Obama -63* Projection: Republicans lose seats Democrats need 2 additional seats to retake the Senate Democrats defending 25 seats, Republicans 10 In six Democratic seats, Trump won by more than 15% (AL, IN, MO, MT, ND, WV) In only two Republican seats, Trump won by less than 5% (AZ, NV) Projection: Republicans retain the Senate * Balance of power shift 26

27 Prediction 10 Republicans lose the House, retain the Senate and further distance themselves from President Trump New federal regulations have nearly ceased Number of new federal regulations implemented by administration New federal regulations Clinton Bush Obama Trump Data source: Politico/Office of Information and Regulatory Affairs, Cornerstone Macro. Used with permission. Data each year is from 20 Jan to 31 May. 27

28 Prediction 10 Republicans lose the House, retain the Senate and further distance themselves from President Trump President Trump believes trade balance is the best yardstick of who is winning U.S. trade balance on goods and services, $400 Why worry about the risks of protectionism under Trump -$350 -$300 -$250 -$ He believes it 2. He keeps saying he is going to do it $ billions -$200 -$ He has hired people who agree with him 4. He has authority to act unilaterally -$100 -$50 -$69 -$68 -$56 -$35 -$29 $0 China Mexico Germany Japan Italy India Data source: Cornerstone Macro, U.S. Census Bureau. Used with permission. 28

29 Prediction 10 Republicans lose the House, retain the Senate and further distance themselves from President Trump Positive impact of tax cuts will dwarf any potential adverse effects of tariffs Comparing tariffs with incremental fiscal policy $600 $ $400 $ billions $300 Tariffs estimated = $36.5 billion Fiscal policy = $800 billion $ $ $ Steel Retaliation China Retaliation (est) Tax Cuts Spending Repats (Est) Data source: Strategas Research Partners, Used with permission. 29

30 Prediction 10 Republicans lose the House, retain the Senate and further distance themselves from President Trump Federal deficit will haunt us, but not yet Total cost of entitlement programs per U.S. citizen $8,000 $7,000 $6,000 Entitlement costs per person $5,000 $4,000 $3,000 $2,000 $1,000 $ Data source: Deutsche Bank, 1/1/62 12/31/16. Used with permission. Entitlement programs consist of mandatory federal spending on programs such as Social Security and Medicare that are not included in congressional appropriation acts. 30

31 The Bitcoin bubble dwarfs all the rest Percent change in price from year one 1480% 1180% NASDAQ Composite (1994 to 2005) Japanese stocks (1983 to 1994) Gold prices (2001 to 2012) Bitcoin prices (2017) Percent change from year one 880% 580% Dot-com bubble bursts Japan s lost decade begins Gold reaches all-time high 280% -20% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Data source: Bloomberg Finance, BCA Research, FactSet. Used with permission. Past performance is no guarantee of future results. Representative indexes: Japanese stocks: Nikkei 225 Index; Gold prices: Spot gold price. 31

32 Higher valuations should not deter investors Valuations and P/E have a strong long-term relationship, but not in the short term Annualized stock returns versus starting P/E levels 1 year 60% 10 years 20% 40% 1-year return 20% 0% -20% Annualized 10-year return 10% 0% -40% -60% 5x 7x 9x 11x 13x 15x 17x 19x 21x 23x 25x Starting forward P/E Data source: Credit Suisse, 1/1/64 12/4/17. Used with permission. -10% 5x 10x 15x 20x 25x Starting forward P/E 32

33 Long-term return observations Think about the long term and remain diversified Deflation/disinflation over; inflating asset values over. Gradual normalization of rates to take place. Sovereign bonds at risk. Volatility to increase as interest rates head higher. Equity returns acceptable, but below long-term averages. Emerging market assets best long-term performers. High starting valuation yields lower returns going forward. Traditional balanced portfolios struggle. Plan expected rates of return not realized. Absolute return products become more interesting. 10-year return forecast by asset class Forecasted return range (%) Equities 5 7 U.S. 5 7 Non-U.S. Developed Markets 4 6 Emerging Markets 6 8 Bonds 1 3 U.S. Government 0 2 U.S. Investment Grade 1 3 U.S. High Yield 3 5 Emerging Market Sovereign 4 6 Cash 2 3 Inflation 2 3 Diversified Portfolios Conservative 2 4 Balanced 3 5 Aggressive 4 6 Data sources: MRB Partners, Nuveen Asset Management as of December The forecast data reflects the opinion of the author, Bob Doll, and not the firm. The information provided herein is not intended to be a forecast or guarantee of future events or results. It is not a recommendation to buy or sell any specific securities and should not be considered investment advice of any kind. Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide positive performance over any period of time. Past performance is no guarantee of future results and different periods and market conditions may result in significantly different outcomes. 33

34 What to do? 1. Overweight equities (but could be bumpy); be willing to reduce into strength and/or inflationary signs. 2. Focus more on alpha, less on beta (active management outperforms, lower correlations, higher volatility). 3. Underweight interest rate sensitive securities (fed funds and longer-term rates should rise). 4. Keep a very careful eye on inflation. 5. Diversify geographically. 6. Overall returns are likely to be mediocre. 7. Consider absolute return products as 2018 progresses. 34

35 Where are we in the market cycle? Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. Sir John Templeton 35

36 Set your sights higher 20-year annualized returns by asset class % 10% 9.7% Average Annualized Total Returns (%) 8% 6% 4% 2% 8.7% 6.9% 5.8% 5.3% 4.6% 3.7% 3.4% 2.2% 2.3% 0% REITs U.S. Equities 60/40 Portfolio U.S. Bonds Gold Non-U.S. Equities Homes Oil Inflation Average Investor Data sources: Morningstar Direct, Bloomberg L.P., Federal Reserve Bank of St. Louis, Nuveen Asset Management and DALBAR, Inc. Quantitative Analysis of Investor Behavior (QAIB), Data from 1 Jan Dec Past performance is no guarantee of future results. Used with permission. REITs: FTSE NAREIT Equity REIT Index; U.S. Equities: S&P 500 Index; 60/40 Portfolio: 60% S&P 500 / 40% Bloomberg Barclays U.S. Aggregate Bond Index; U.S. Bonds: Bloomberg Barclays U.S. Aggregate Index; Gold: USD/troy oz.; Non-U.S. Equities: MSCI EAFE Index; Homes by the median sale price of existing single-family homes; Oil: West Texas Intermediate (WTI) Index; Inflation: Consumer Price Index; Average Asset Allocation Fund Investor by DALBAR, Inc. Quantitative Analysis of Investor Behavior (QAIB), 2016, Average Asset Allocation Fund Investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions and exchanges. 36

37 Important Disclosures This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor s objectives and circumstances and in consultation with his or her advisors. This presentation is for general information purposes only and should not be construed as specific tax or investment advice. The statements contained in this presentation are the opinions of Nuveen Asset Management, LLC and data available at the time of publication, and is not intended to be a forecast or guarantee of future events or results. It contains information from third-party sources believed to be reliable but are not guaranteed as to accuracy and not intended to be all inclusive. It does not constitute an offer, solicitation, or recommendation regarding securities or investment strategy and is not intended to predict or depict performance of any investment. Past performance is no guarantee of future results. A word on risk Equity investments are subject to market risk, active management risk, and growth stock risk; dividends are not guaranteed. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. The use of derivatives involves additional risk and transaction costs. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, derivatives risk, income risk, and other investment company risk. As interest rates rise, bond prices fall. Credit risk refers to an issuer s ability to make interest payments when due. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Foreign investments involve additional risks as noted above. Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen, LLC. 37

38 Index Definitions One basis point equals.01%, or 100 basis points equal 1%. The Bloomberg Barclays U.S. Aggregate Bond Index represents securities that are SECregistered, taxable and dollar-denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage passthrough securities and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index tracks the performance of U.S. non-investment-grade bonds and limits each issuer to 2% of the index. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index of Treasury securities maturing in 90 days that assumes reinvestment of all income. Capital expenditures (capex) are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. The Chicago Board Options Exchange Volatility Index (VIX) shows the market s expectation of 30-day volatility. It is often referred to as the investor fear gauge. The Constant Maturity Treasury Rate is a general proxy for the most current U.S. Treasury bond at a particular maturity. Consumer Confidence Index (CCI) measures how optimistic or pessimistic consumers are about the economy in the near future. The Consumer Price Index (CPI) is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. Correlation is a statistical measure of how two securities move in relation to each other. Perfect positive correlation (a correlation coefficient of +1) implies that as one security moves the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation (a correlation coefficient of -1) means that securities will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; their movements in relation to one another are completely random. Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of a company's profitability. The federal funds rate is the interest rate at which U.S. depository institutions lend reserve balances to other depository institutions overnight, on an uncollateralized basis. The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. It is composed of the board of governors, which has seven members and five reserve bank presidents. The FTSE NAREIT Equity REIT Index is an unmanaged index reflecting performance of the U.S. real estate investment trust market. Gross domestic product (GDP) is a primary indicator used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. Real GDP is adjusted for inflation. Nominal GDP is not adjusted for inflation. GDP deflator (implicit price deflator) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. The Market Vane Bullish Consensus is compiled daily by tracking the buy and sell recommendations of leading market advisers and commodity trading advisers relative to a particular market and reflects the open positions of that day s market close. The MSCI EAFE Index is a stock market index that is designed to measure the equity market. The MSCI World Index ex-u.s. is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets minus the United States. The Nikkei 225 Index is a stock market index for the Tokyo Stock Exchange. The price-to-earnings ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings. Quantitative easing (QE) is a monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. The Sticky Price Consumer Price Index (CPI) is calculated from a subset of goods and services included in the CPI that change price relatively infrequently. Because these goods and services change price relatively infrequently, they are thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis. The Thomson Reuters/CoreCommodity CRB Index tracks the performance of 19 different commodities. The spot price of gold is the going rate for a direct transfer of gold for cash. The troy ounce is used in the pricing of metals such as gold, platinum and silver. There are troy ounces in a pound. The Trade Weighted U.S. Dollar Index measures the value of the U.S. dollar relative to other world currencies. The U.S. Treasury T-Bill Constant Maturity Rate 10 Yr. Index is published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a 10-year maturity. The West Texas Intermediate (WTI) Index is used as a benchmark for pricing much of the world s crude oil production. GPP-10PRED-0418D INV-Y-01/19 38